September 28, 2008

My skepticism has its roots in anecdotal evidence from a couple of scuba trips to Indonesia. A high number of the dive masters in Indonesia smoke. Misinformation does not seem to apply. These young men (all have been men) have a good grasp of health issues dealing with the risk of decompression sickness and poisonous stings (rarely lethal but painful) for themselves and the divers in their charge. They speak English and are exposed to westerners who preach the evils of smoking to them daily. Yet they smoke in droves.

Using panel data from 2,100 households in 135 communities of the Philippines collected in 2003 and 2006, the analysis finds that mobile phone ownership leads to a 20 percent decline in monthly tobacco consumption. Among households in which at least one member smoked in 2003, purchasing a mobile phone leads to a 32.6 percent decrease in tobacco consumption per adult over the age of 15.

What I find most interesting about this paper is not the idea that cell phones can reduce smoking but that smoking and cell phones are somehow similar.

What I think is similar is that both cell phone use and smoking represent a type of public conspicuous consumption that takes place in a social setting. They are both social signals.

September 27, 2008

Failures fascinate me, they always have. The current financial crisis is no exception. There is no shortage of opinion on the cause of this crisis. Housing, mortgages, financial institutes, and government regulation are all involved but I see little clarity or consensus on what caused the failure and what interventions might help alleviate the crisis.

I have heard the crisis referred to as a “perfect storm”. In my mind, the perfect storm analogy refers to a well understood system in which independent variables simultaneously reach a state that produce maximum nastiness. Watch the variables and you can predict when it is time to pray.

The U.S. financial crisis is not like a perfect storm. It is a classic nonlinear system in which we don’t understand the critical variables nor their expected behavior when these variables change. Here is my guess at what the critical variables are/were in this crisis:

Compared to Canada, the U.S. has many more incentives for people to buy homes. Fannie Mae and Freddie Mac with an implied government insurance policy, tax deductible mortgage interest, and laws that required lending to traditionally high-risk individuals.

Mortgage-backed securities for years were hailed as a major innovation in the financial industry (Canada lagged in this department). Risk was measured by 3rd party rating agencies and shifted in bulk to all the owners of the securities. The incentives in this system encouraged deceit and sometimes fraud by both lenders and borrowers.

The incredible growth of China and other nations produced central banks and sovereign wealth funds that were flush with cash. There was a great deal of demand for safe money market financial instruments and mortgage-backed securities looked attractive compared to treasury bills at historic lows. Only the U.S. economy is large enough to meet the safety requirements these institutions demanded.

Some blame Alan Greenspan for this mess because he did not investigate the early signs of this crisis and because the historically low interest rate. This interest rate was set low to bolster the economy after 9/11 fueled the mortgage meltdown. Low interest rates together with government incentives for home ownership made buying a home seem “free”. Low interest rates made traditional money market products unattractive and a race was on to offer new alternatives (i.e. mortgage-backed securities).

Finally, an over-supply of housing made sure that the housing bubble would eventually pop rather than deflate.

Was there greed? Sure, pockets of it but it was not a key driver like it was for the Internet stock bubble. Fraud, again, pockets of it but certainly many orders of magnitude less than with Enron. Over enthusiastic investors? I find it hard to believe that anyone thought that mortgages were anything other than a safety play (but I certainly could be wrong). Regulators asleep at the wheel? Considering how complex this crisis is, I find it hard to believe that anyone could have prevented the crisis with prescient regulation. I doubt anyone can create new regulations now that would do less harm than good moving forward.

So will the 700 Billion plan fix things? I dunno. It makes for good theater though doesn’t it. Who says government doesn’t support the arts.

September 14, 2008

It is common to describe someone as the type of person who “wear their heart on their sleeve”. I’ve been thinking about this idiom since reading Nicholas Carr’s post about The OmniGoogle. Carr’s piece ends with a comparison between Microsoft and Google:

Google differs from Microsoft in at least one very important way. The ends that Microsoft has pursued are commercial ends. It’s been in it for the money. Google, by contrast, has a strong messianic bent. The Omnigoogle is not just out to make oodles of money; it’s on a crusade – to liberate information for the masses – and is convinced of its righteousness in pursuing its cause. Depending on your point of view as you look forward to the next ten years, you’ll find that either comforting or discomforting.

This post is neither about technology nor economics but about the concept of motivations. Google and Microsoft are similar in that they both hold an almost unassailable position of power in terms of their core product (desktop OS and search respectively) but that Google differs in that it cares about something deeper than money and this makes them somewhat scarier than Microsoft (in Carr’s view which I think I agree with).

How can this be? How can we trust purely monetary motivations more than moral ones? I think understanding this paradox is key to certain left-vs-right divisions.

What it comes down to is whether or not you wear your motivations on your sleeve. I am not taking a left-misunderstands-the-right position here. The reverse can also be true. I believe one of the most important left-vs-right political divisions is a religious one (especially in the U.S.). It is not the belief in a higher being per se that is the root of the problem, it is potential motivations that are hidden from clear view. Small “L” liberals do not generally trust anyone that has religious motivations. The key to having faith and being accepted by people who do not share your faith is displaying a clear record of being able to demarcate the decisions you make in life from the religious doctrine you ascribe to. Catholic politicians must answer questions about contraception. Mitt Romney has to answer whether or not The Garden of Eden is in Missouri.

If you don’t know me, the question most likely going through your head right now is whether or not I am religious… it is important for you to understand my motivations when reading my opinions on the topic. And that is the point. Microsoft, with a history of self-interest based choices, can be more trustworthy than The OmniGoogle because Microsoft wears their motivations on their sleeve.

The “messianic bent” Carr describes is key. Al Gore has a messianic bent when it comes to Global Warming. We add the -ism and -ist suffixes to certain ideas to make this bent clear. Global Warm-ism and Global Warm-ist (who go to battle against Denial-ists). Hilary Clinton is a National-Healthcare-ist. Ralph Nader is a Corporations-Are-Evil-ist. Barack Obama is all of the above. Neocons are Bush-Doctrine-ists. America is imperial-ist. This new -ists are similar to the terms racist and socialist that have been proven over time to be negative forces. Like the word propaganda, the messianic -ism/-ist words are only used by people that are against the -ism or the messianic bent of the supporters of the -ism (the -ists).

If you are an agent of change, you should check your sleeves often and ensure you are -ism proof.

September 13, 2008

Near the start of his book, “The Conscience of a Conservative,” Barry Goldwater wrote: “Every man, for his individual good and for the good of his society, is responsible for his own development. The choices that govern his life are choices that he must make; they cannot be made by any other human being.” The political implications of this are clear, Goldwater continued: “Conservatism’s first concern will always be: Are we maximizing freedom?”

Goldwater’s vision was highly individualistic and celebrated a certain sort of person — the stout pioneer crossing the West, the risk-taking entrepreneur with a vision, the stalwart hero fighting the collectivist foe.

The problem is, this individualist description of human nature seems to be wrong. Over the past 30 years, there has been a tide of research in many fields, all underlining one old truth — that we are intensely social creatures, deeply interconnected with one another and the idea of the lone individual rationally and willfully steering his own life course is often an illusion.

Ummmm…. I’m a little confused. I don’t see how the notion that individuals should be free to make their own choices rather than have others force choices onto them is lessened by the knowledge that humans are extremely social animals.

I don’t think I have to re-read (or re-watch) “A Clockwork Orange”. The question is not the degree to which Alex and his droogs are social, the question is whether we have a right to hold their eyes open with intrusive machinery against their will.

September 13, 2008

Dear Rad,
Please start commenting on the federal election because right now I need to hear your rational defense of conservative policies. A Stephen Harper majority is giving me nightmares.

If I remember correctly, fear of a Stephen Harper government was the main argument against the Conservatives in the last election, no? Something about Harper wielding The-Clause-Of-Conservative-Destiny (Tenacious D rules!!!).

I think Harper’s Conservatives are as centrist as they come. I don’t think fiscal conservatives (like myself) or social conservatives (pro-family types) or the keep-your-stinkin’-paws-off-of-our-oil-revenue types (Albertans) are licking their chops with the prospect of a Harper majority. We expect small tweaks to policies that have been embraced by both Liberals and Conservatives for decades now and we don’t even expect the tweaks to be in a direction we favor. The current brand of Lost-Liberals, NDP, Bloc, and Green Party promote policies that would give me nightmares if I thought they had any hope of taking power.

I think we all have to get used to the idea of the current Conservatives being in power for quite some time. The fact that the Conservatives were in power this long with a coaltion-free minority government is mind boggling. There is only one centrist choice currently while all the other federal parties have taken a left-ward turn (including the Bloc).

Splitting votes across different parties/candidates with almost identical policies is not a recipe for success. Just look at the impact of a Ralph Nader or Ross Perot on U.S. politics.

So personally I am not terribly excited by the Canadian federal election. The views of the “left” vs. the “right” I find fascinating. Obama vs. Palin I find fascinating. Whether or not there is any such thing as a “rational defense” I find infinitely fascinating.